Summary the Nature of Income Measurement W. Beaver and J. Demski (1979)
The Nature of Income Measurement – W. Beaver and J. Demski (1979)
Introduction
The Paper of Beaver and Demski generally has the purpose to explore the nature of income measurement.
They define income measurement as a representation of preference ordering on production plans of the firm. Or: Taking the best one out of possible production plans from a firm.
The easiest way to explore such a measure is by looking at it in a complete and perfect market surrounding, but the authors will have a look at four market situations: 1. Income measurement in: Certain world + perfect and complete markets 2. Income measurement in: Uncertain world + perfect and complete markets 3. Income measurement in: Uncertain world + imperfect and incomplete markets (realistic). 4. Reinterpretation of financial reporting ad a noisy communication process in the ligjt of potentially impossible fundamental measurement.
Income measurement in a certain world with perfect and complete markets
The first setting the authors looked at, as already told, is the conventional, neoclassical setting. Here they look at a subjectively certain world with perfect and complete markets. This means that all goods and production factors are traded in organized markets.
Moreover, everyone knows which production plan is best for the firm, and thus there will be a unanimous choice for the optimal production plan.
This is possible because in a perfect market, we know that for everyone - more income is better. - All prices are known by every agent. - There are no transaction costs. - The market is in equilibrium. - the firm can instantaneously transform resources into goods.
As a result, it is easy to maximize the income of a firm by choosing the best production plan.
Measuring income in this setting is nothing more than the price of all goods produced less the price of all goods acquired.
Income measurement in an uncertain world with perfect and complete
Introduction
The Paper of Beaver and Demski generally has the purpose to explore the nature of income measurement.
They define income measurement as a representation of preference ordering on production plans of the firm. Or: Taking the best one out of possible production plans from a firm.
The easiest way to explore such a measure is by looking at it in a complete and perfect market surrounding, but the authors will have a look at four market situations: 1. Income measurement in: Certain world + perfect and complete markets 2. Income measurement in: Uncertain world + perfect and complete markets 3. Income measurement in: Uncertain world + imperfect and incomplete markets (realistic). 4. Reinterpretation of financial reporting ad a noisy communication process in the ligjt of potentially impossible fundamental measurement.
Income measurement in a certain world with perfect and complete markets
The first setting the authors looked at, as already told, is the conventional, neoclassical setting. Here they look at a subjectively certain world with perfect and complete markets. This means that all goods and production factors are traded in organized markets.
Moreover, everyone knows which production plan is best for the firm, and thus there will be a unanimous choice for the optimal production plan.
This is possible because in a perfect market, we know that for everyone - more income is better. - All prices are known by every agent. - There are no transaction costs. - The market is in equilibrium. - the firm can instantaneously transform resources into goods.
As a result, it is easy to maximize the income of a firm by choosing the best production plan.
Measuring income in this setting is nothing more than the price of all goods produced less the price of all goods acquired.
Income measurement in an uncertain world with perfect and complete